European new car sales are set to decline for the fifth year in a row in 2012 to 13 million vehicles, Fiat chief executive Sergio Marchionne said yesterday, as the group took another step towards a full-blown merger with US automaker Chrysler.

"For 2012 the market expectations in Europe are not encouraging," Marchionne, who also runs Chrysler, told a shareholder meeting in Turin where a share conversion for paving the way for Fiat's merger with the US carmaker was approved.

Marchionne's forecast compares with 13.1 million cars sold in Europe last year, and almost 16 million cars sold in 2007, before the start of the financial crisis, according to figures from lobby group ACEA.

The European car market is facing declining consumer spending power and fears over high oil prices, while automakers are engaged in cut-throat price competition that adds to pressure on their margins.

Marchionne had already projected a downbeat outlook for Fiat's Italian home market, where 2012 sales are expected to slide to 1.5 million units after a "horrible" month of March - the worst since 1980.

He said the combined group's profit targets for 2012, expressed in a range to factor in the weakness in Europe, is expected to start recovering at the end of the year.